The ruling will not come into effect immediately: the
holdouts have an appeal that prevents Griesa’s
judgment from having jurisdiction and there is a possibility
that it will just lead to renewed rounds of
litigation.

Daniel Chodos,
Credit Suisse

The Macri administration has so far agreed deals with Italian
holdouts and two of the six US investors. This agreement is now
focusing the minds of investors and bankers about
Argentina’s capacity to re-enter the markets when,
not if, the saga is finally put to rest.

"There hasn’t been any new, direct
international issuance for about a decade and a half, so we
expect a lot of interest," says one banker who declines to be
named because he says his bank is engaged in sensitive
discussions with the sovereign. "There will also be good
technical support around the accumulation of coupon pending the
payment of debt around the pari passu bonds. I would think
that, in total, technical demand could be as much as $3 billion
to $4 billion, which would be a boost to the book-building
process."

Daniel Chodos, Latin American strategist at Credit Suisse,
thinks Argentina could target more than $10 billion of issuance
once it returns to the markets to fund the
holdout payments and raise finance for a government under
fiscal strain.

"In terms of position, the EM dedicated investors are still
underweight Argentina, so they will likely be the marginal
buyers of Argentina debt," says Chodos. "It could be difficult
for the market to absorb more than $12 billion of potential new
issuance from Argentina, but I don’t think it is
impossible if it is well implemented and the pricing is
attractive."

Technical support

Chodos says the country would further benefit from technical
support due to Argentina’s increased weight in EM
indices. "Since Argentina’s weight in the main EM
bond indices will increase, that will force real money
investors to buy," he says. "One risk is that distressed
investors, currently the main holders of exchanged bonds, will
eventually unwind their positions in Argentina, creating
additional supply in the market."

Predicting pricing levels is difficult given current market
volatility. "Bond spreads have increased in EM, which is a risk
to Argentina because it creates competition in international
debt markets," says Chodos. "
Brazil is trading in the 7% area and US high yield is at
10%, so Argentina will have to compete with that."

Too much good news

Another banker is sceptical of suggestions that Argentina
could come below Brazil. "Are investors going to price nearly
500 basis points below
US high yield? I very much doubt that."

Carl Shepherd, fixed income portfolio manager at Newton
Investment Management, is wary of the credit. "Everything
investors wanted to see seems to have been taken as a given,
and there has been too much good news priced in," he says.
"That can expose valuations to a quick turnaround in sentiment.
Ultimately there is still a lot to be done, and with low
reserves and high debt levels – and still a twin
[fiscal and current account] deficit – so there are
still risks there and I don’t think it is being
priced correctly."

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